Published: 17 July 2009.

Contributed by Jake Clarke of Management Rights Sales

Six months to Xmas-has the economy turned?

Well we have all weathered the economic downturn and all have been affected in one way or the other. Some battered and bruised more than others.  The Management Rights industry is moving forward as predicted, contracts of sale are consistent, however there are certainly some market corrections.

Apart from the economic slow down, unseasonal rain, storms, floods and various flu outbreaks all have helped put the brakes on holiday income. Certain areas were affected greater than others. North Queensland and the Whitsundays had record bad weather, Northern NSW and the mid north coast suffered as well.  Talking to various managers in different holiday destinations they all agree if the weather was fine the economy would have made little difference to occupancy levels.
Given another six months or so with purchaser confidence back in full, all correctly priced stock will continue to sell. Permanent complexes with steady rental numbers are highly sought after as are high nett profit holiday buildings with the correct wage content. It is fair to say the holiday orientated management rights are slower to move, uncertainty in purchasers minds, in repeating the past 12 months nett profit due to the slow tourism market and unusually wet season have not helped.

It is disappointing that some industry associates continue to talk certain sectors of the industry down. NSW in general is a difficult market due to lack of recent sales especially in the high end. Financiers are expressing different points of view in the NSW market, location, length of agreements all lead to varying policies on lending dependant upon the equity input by the purchaser. We see new so called industry experts come to notice all trying to reinvent the management rights industry, never talking the industry up only trying to pre-condition vendors to dramatically reduce their valuable asset.  There is a simple formula - supply and demand.  The more demand, the less supply = higher prices. Higher prices at contract attract higher valuations and stability in the industry.

All management rights with a financier in place are subject to valuation, this is where we are in the majority of cases not achieving true market value. No fault of the valuer.  I correct that, no direct fault of the valuer. When there is not a strong consistent flow of management rights being contracted and settled, the market becomes stifled. The majority of the recognised valuers agree, there has been a slight correction at the top end of the market, but unfortunately the bottom end with nett profits lower than $130,000 and high real estate component are difficult to move, unless the purchaser has little borrowings.

As the economy corrects itself, we will find supply and demand will look after pricing. Talking to various industry lawyers we are also experiencing some difficulty in assignment. It is imperative that before going to the market, check the validity of your agreements, any extension options, office hours, are they fixed or flexible , are common property duties clearly defined.  We have been recently conducting seminars in conjunction with a major financier, accountant and lawyer.  These seminars are aimed at vendors getting ready to go to the market.  It is remarkable how we have assisted these vendors in smooth sales transactions with little or no unexpected surprises resulting in a successful sale. A professionally prepared accountants report for the previous 12 months trading, a written current valuation on the managers associated real estate and a genuine desire to sell at current market price.
My “Crystal Ball” remains intact.  It has been seen to get a little cloudy in the first 6 months of 2009, however remains sitting in place, conjuring up what the next 6 months will bring in our commercially sound industry.

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